Risk Tolerance, 100% Money Back Guarantees & Risk Reversals

As marketers we must learn to develop an appreciation for the buyer's ‘Risk Tolerance’.

Risk describes the possibility (real or perceived) that the purchase won’t solve the customer's problem. Maybe the product won’t work, the service is bad, the parcel never shows up, or some other scenario where the buyer gets burned.

There’s risk associated with all purchases. Even basic ones.

There’s also differences in the level of risk tolerance between buyers. Most can handle buying a little spoiled fruit from time to time. Not all have the risk tolerance to buy a used car from a private seller.

Caveat Emptor: “Let the buyer beware.”

In situations where the risk is real, ethical marketers disclose the risk. It’s the right thing to do, and it’s often written into the law. Any information product that teaches users to trade in the stock market must - by law- say that they cannot guarantee results. This lets the buyer decide for themselves whether or not to take the risk.

Perceived Risk, on the other hand, is something marketers can work with.

A ‘Risk Reversal’ is anything the marketer does to reduce or remove the perceived risk from an otherwise qualified buyer who’s on the fence. It’s a way of using risk to craft a stronger sales pitch.

The most well known of which is ‘The 100% Money Back Guarantee’. You’ve seen this many times before, “If for any reason you’re not completely satisfied, just return the product within the first 90 days and you will receive a 100% refund. No questions asked.”

Make no mistake, some people will ask for their money back. However, the risk reversal will also push some people over the edge. If you’re guarantee pushes ten people off the fence and three want their money back, you’ve won but a mile.

For marketers, the risk reversal is taken to another level when you realize that it goes beyond the money.

With some products, there is a very real risk of the buyer not making the purchase out of the risk of embarrassment or losing face. Sellers of ‘Adult’ products and services learned that they could convert more buyers by making it explicit that the charge on the credit card will have a generic name and any products will arrive in generic packaging.

Risk - in other words - is something of a chameleon. It take on a variety of forms. For expensive luxury items, clever marketers will both persuade the buyer to make the purchase and give them rational ways to justify the purchase to spouses and peers. Again, removing the risk of embarrassment or losing face.

Silly? Maybe. But once you understand what the perceived risks of purchasing are for your market, you’ll have one extra tool to make the sale.

We have to acknowledge that within any market there is an average risk tolerance. Some will have higher risk tolerance, some lower.

We should be challenging ourselves to think, “If I didn’t get those people with low risk tolerance on the first run through, what can I do to transform the perceived risk into a strength?